What investors need to know about Ukraine

Turmoil for emerging markets, Austrian banks and energy markets; no big threat to U.S. stocks

By

WilliamL. Watts

NEW YORK (MarketWatch) — Worries about Ukraine are on the rise, triggering a mild reaction in global financial markets Thursday after armed men took control of a regional parliament in the Crimea region of the country following the ouster of the country’s pro-Kremlin president by pro-Western demonstrations.

So do investors have anything to worry about? Here’s what you need to know:

Global stocks

Wall Street quickly put Ukraine concerns on the back burner, with U.S. stocks rallying and the S&P 500
SPX, -0.88%
setting a record close. Earlier, stock-index futures had faced a modicum of pressure tied to Ukraine. Investors typically “sell first and ask questions later,” notes Andrew Wilkinson, chief market analyst at Interactive Brokers in Greenwich, Conn. While the situation offers some “political risk” it would likely take a major escalation of events to exert a major influence.

Reuters

Ukrainian men help pull one another out of a stampede as a flag of Crimea is seen during clashes at rallies held by ethnic Russians and Crimean Tatars near the Crimean parliament building in Simferopol, Ukraine.

Think something along the lines of Russian military intervention in an effort to aid the secession from Ukraine of the country’s pro-Russian southern region. While Russia is engaging in saber rattling by, for example, conducting military exercises near its border with Ukraine, it will likely take something more belligerent to put a lasting scare into the market.

Meanwhile, Russian President Vladimir Putin ordered his government to consult with foreign governments and the IMF on aid for Ukraine, news reports said late Thursday.

“Should there be a serious confrontation between Russia and the West over Ukraine, political risk premiums would rise in Russia and in Europe and would likely lead to a general pullback in global equity markets,” said Bill Witherell, chief global economist at Cumberland Advisors, in a note.

But without a big showdown, Ukraine has only “limited potential to deliver a negative surprise sufficient to produce financial contagion in markets,” he wrote.

Currencies, gold

A major confrontation, however, could also do harm to the Russian economy, strategists note, which may end up restraining the Kremlin. Indeed, the Russian ruble
USDRUB, -0.04%
took a big hit in the wake of the events in the Crimea, trading at its weakest level versus the U.S. dollar in five years.

Gold, a traditional haven in times of international turmoil, found some support Thursday. But the reaction was pretty mild, with April futures
US:GCJ4
up just $3.10, or 0.2%, to $1,331.10 an ounce.

If anything, gold’s rise was restrained as the dollar also enjoys some haven-related buying. A stronger dollar makes commodities priced in the currency more expensive to nondollar users.

The dollar saw a modest rise in Asian and European trading hours, but has turned lower versus the euro. The Japanese yen, which is viewed as even more of haven, remains stronger versus the greenback.

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